A new OECD study on robotics and reshoring finds that multinationals are reorganizing production in reaction to more capable automation and rising wages worldwide.
The Organization for Economic Co-operation and Development, or OECD, last week released a paper that found that as automation is spreading, the use of offshore production is decreasing. While correlation is not causation, it does suggest that reshoring of manufacturing could be a benefit, or at least a parallel trend, to robotics adoption.
“Industrial Robotics and the Global Organisation of Production” (OECD Science, Technology and Industry Working Papers), by Koen De Backer et al., looks at data from 2010 to 2014. The Paris-based intergovernmental body is careful not to make policy recommendations but tries to provide objective insights into current economic trends.
In contrast to academic or industry-sponsored studies, the OECD paper avoids anecdotal descriptions of industrial automation and optimistic or pessimistic views of robotics adoption. It also observes some differences in how countries at different levels of economic development are benefiting from automation.
“The results indicate that the use of industrial robots in developed economies appears to be slowing the offshoring rates, although it is not yet prompting firms to bring jobs back home,” said the report’s introduction. “However, the effect is very recent, especially in labour-intensive sectors, and not yet apparent in developing countries.”
Methodology and marking change
“We’ve been working on this paper since winter of 2017,” said Timothy DeStefano, co-author of the OECD paper. “Our objective was to shed light on a topic that has been discussed with anecdotal studies.”
“The data trends with shifting assets in global value chains [GVCs] show that robots are changing the ways in which companies are organizing themselves,” he told Robotics Business Review.
“Over time, the prices of robots are starting to decline, as their functionality is increasing,” DeStefano explained. “At the same time, wages in less-developed economies have continued to grow over time. The wage gap between developed and emerging markets is decreasing.”
As a result, industrial automation is making it more attractive for global manufacturers to shorten their supply chains and reverse offshoring trends of the past few decades, he noted.
The confluence of key technologies enabling industrial digital transformation. (Source: OECD, 2017)
“Our analysis attempts to look at the issue from several levels of aggregation,” said DeStefano. “The offshoring measure at the industry level represents the share of imported inputs over total demand of inputs.”
“With less inputs from abroad and more domestically, we can say that offshoring is decreasing,” he said. “We looked at the growth of robots correlating with offshoring — countries that experienced significant growth in robots also had a slow in offshoring.”
“From 2010 onward, we had only anecdotal evidence in previous papers– we had to test this,” DeStefano said. The paper cites “digital transformation” but observes that any actual effect on employment isn’t yet well understood.
Countries vary in reshoring
The OECD paper cites statistics from the International Federation of Robotics, which tracked things such as patent applications, the number of robots bought and used by industry, and “robot intensity” or density per population of different countries.
Not surprisingly, South Korea, Japan, and Germany are the most intensive users of industrial automation, and the U.S. and China have been investing heavily in both robotics production and use. Developing economies are also looking to robots, advanced manufacturing, and process automation. Reshoring results, however, varied.
The OECD has found that robotics has not yet affected reshoring in emerging economies. (Click here to enlarge; Source: OECD)
“The differences in robot usage across countries can be explained by higher-than-average wage growth, low unemployment rates and/or workforces that are rapidly ageing [sic] in developed economies,” said the paper. “In emerging economies, the need to achieve higher quality standards is another motive for the large investments in robots.”
“We see interest in quite a few countries in increasing use of robots, and other countries are enabling production of robots within the country,” said DeStefano. “It’s increasing on both the demand side and the supply side.”
“We see a difference between the perceived benefits of robots within advanced economies,” he said. “Some say robots will be important to reduce offshoring and increase competitiveness, which suggests that they weren’t competitive from the beginning. This depends on one’s perspective, and it’s politically charged.”
“There is the belief that home markets are becoming less competitive because of rising salaries, so bringing home production [with robots] could make the country more competitive,” said DeStefano. “China and other countries have dedicated significant resources, such as with Foxconn.”
“This study doesn’t necessarily address policies; it just looks a usage over time,” he explained. “One of the things that holds us back is data. For exact usage of technology, we would need more of a firm- or company-level study.”
“The angle we took was more in terms of developed versus emerging economies,” DeStefano said. “We think that for offshoring and engagement within GVCs, participation and usage influences both sides in the value chains.”
“The interesting angle was that countries at different development levels rather than size were looking to automation, but the outcomes were slightly different,” he added. “Robots negatively correlated with offshoring in highly developed economies, but we don’t find as clear-cut evidence in less developed economies.”
If both developing and advanced economies are turning to automation, why are the latter countries benefitting more from reshoring and robots?
“We have to be careful, but with offshoring, highly developed economies have already been engaging with GVCs differently,” DeStefano responded. “They’ve already experienced breaking down value chains and distribution throughout the globe for trade and cheaper labor. The increasing dexterity of machines is causing companies in those economies to reconsider offshoring.”
Careful research
DeStefano acknowledged that it’s “early days” for reshoring trends, as well as the empirical study of the global effects of automation.
“We find some inklings that change in the organization of production is taking place,” he said. “Robots are contributing to that, but we have to be careful in suggesting what the results mean.”
“What we can say is that the usage of these robots in highly developed economies tends to suggest that they’re relying on less supply from abroad,” DeStefano observed. “During the same time, from 2010 to 2014, we find evidence that there is some backshoring of employment from affiliates of multinationals to home countries.”
Continuing research for robots and reshoring
“We’re expanding the sample period from 2014 to 2016,” said DeStefano. “We have data for robots, but we’re waiting on the trade variables. Hopefully, in a month or two, we’ll be able to look at levels of trade all the way from 1993 to 2016.”
Again, the OECD will be examining robotics adoption and manufacturing inputs and output in developed and developing economies. It’s up to the governments and multinational enterprises (MNEs) reading its studies to draw conclusions and devise policies.
The effects of robotics growth among multinationals (Click here to enlarge; Source: OECD)
“We don’t address many differences between countries — geography and distance within a country, currencies — there are many things that can influence results,” DeStefano said. “We have additional control variables for fixed effects.”
“The purpose of the study isn’t to make note of politics but to try to find a clean estimation on organization of production,” he said. “We’ve tried to provide a robust analysis on the effects of automation and reshoring.”
“We’ll be releasing papers every six months,” DeStefano said. “Within the next two to three years, we’ll research the area quite intensively. Across the organization, there is quite high interest in these topics.”
Even as the debate continues over how robots and artificial intelligence will affect manufacturing and employment, the OECD papers will be a resource for those trying to understand the actual trends. Download the paper for the OECD’s full findings.
